How is the flow of foreign funds into a country influenced by inflation in that country?

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Foreign funds come into a country when investors outside the country can make larger gains by investing in various assets in the country compared to the gains they can make by investing in assets in their own country.

For example, investors outside a country A would buy stock in A rather than in their own country if the industrial growth in A is expected to be very high and the price of stocks of companies located in A to rise a lot. Similarly, if banks in A give a higher rate of interest for deposits, foreign investors would prefer to invest their money in these deposits.

When inflation rises in a country, the primary financial institution in the country tries to reduce it by decreasing the money supply in the system. This is usually...

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